October 2, 2012

Toy Sales Are Down? Here’s why!

I make it my business to follow all forms of play. I do this because all of us, whether a
producer of video games, a maker of Tinker Toys or an app game developer are
competing for the same consumer dollar.

When you look at the Play Industry as a whole you begin
to realize that the Play Industry is suffering from a supply and demand
problem. In short, the amount of play
being offered is now bigger than the available consumption.

Let’s take a look at the 2011 / 2012 comparable sales for
the various toy categories:

Video
Games

The numbers say it all.
Below, according to the website Gamasutra,
are the month to month 2011 / 2012 comparable sales of video games this
year.

January -37%

February -24%

March -26%

April -42%

May -16%

June -29%

July -22%

August -12%

See a trend? Well,
it’s been going on for a while now and even with new hardware on the way, it is
doubtful that this industry will again see the levels it experienced just a few
years ago.

Traditional
Toys

There have been some unusually downbeat articles on the
toy industry in recent weeks. In August,
The Wall Street Journal ran an
article whose title said it all: “Lego Chief Sees Weak
U.S. Demand for Toys.” The article reported that Lego
CEO, Jorgen Vig Knudstorp, as saying "These six months have been the most
negative toy market that I have seen in the U.S..."

In the same
negative vein, MarketWatch ran an
article on September 25, 2012 entitled: “Softer
U.S. demand could hurt toy makers.” The
article quotes NPD as stating that “…data showed domestic retail toy sales have
posted mid- to high-single digit percentage year-over-year declines each

month
this year, including a 6.6% drop in August. Nearly all
categories--action figures, games/puzzles and infant/preschool--have notched
weaker sales.”

Social Gaming

Remember when everyone was playing Farmville
on Facebook? Well, they stopped! As a result, Zynga the company behind “Farmville”
and “Words with Friends” is struggling as its revenues and stock price drop and
high level executives exit the company.

Here
is how an article on the Silicon Valley based Mercury News framed it:

…people are now
migrating to smartphones and tablet computers in droves... Zynga has yet to
prove it can reap the same revenue from iPhone and Android games…Investors who own
Zynga stock have sold it off in droves, spooked by declining user numbers and a
worry that Facebook games were just a fad, with people moving on to playing on
their iPhones and Android phones instead.

Bottom Line

The combination of the new platforms (iPhone,
the iPad and the Android products) plus the existing ones are creating an
over-supply of playproducts. In other words, those declines in sales may
derive from what has become a buyer’s
market for play.

The modern consumer faces an abundance of
ways to play.As a
result, between video games, toys, social gaming and apps there may be more
supply than there is demand. Until
the demand aligns with the supply look for all formats to struggle.

Comments

Richard, as a toy store owner, I can respond somewhat to what these traditional toy makers are saying. It isn't so much that consumer demand is down as it is that available cash is down. Banks are cutting back on unsecured lines of credit - the money that many retailers would use to stock up heavily mid-year. Therefore, those same retailers are cutting back purchases, which toy makers might read as lack of demand. I think it is not necessarily a lack of demand so much as a lack of credit to stock up early. I know we have cut our inventories greatly through the first half of the year, yet our toy sales have remained steady. We are just waiting longer to do our big stock up for Christmas.

Hey Richard, I can't say I agree with your supply and demand assessment. Consider this: ample evidence suggests there are more people playing game than ever before, but audience is in flux between various platforms.

The video game industry is suffering from a continuing malaise that started long ago. Sure, there are big video game hits, but the market will only support so many of these hits, especially considering spiraling budgets. New hardware will help, but video game manufacturers must respond to changing gamer behaviors. Strengthen the base of hardcore fans by building casual gamers up the nerd ranks.

Similarly, traditional toys are suffering because innovation has stalled. Sure, there are some great toys out there! But broadly, manufacturers and retailers aren't providing innovative products capturing what consum,

Regarding Zynga revenues reaped via Facebook gaming versus mobile app sales, social gaming is in flux. Nobody has any evidence to suggest that social gaming is declining overall, just that certain platforms are in flux. Monetization is an issue here, but audience demand is certainly not in decline across the various popular platforms.

I'm not sure demand is in issue here. Gaming behaviors changed and video game manufacturers have, largely, failed to keep up. Similarly, Zynga's Facebook games have not grown and changed with the behaviors of users.